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States are no longer preempted from assessing USF contributions on intrastate revenues of nomadic interconnected VoIP providers

On November 5, 2010, the FCC issued a Declaratory Ruling allowing states to begin collecting state universal service fund (“USF”) contributions from nomadic interconnected VoIP service providers based on the providers’ intrastate revenues, so long as each state's particular USF obligations do not conflict with federal law or policies. The ruling did not reach the issue of whether states could retroactively collect contributions for past revenues.

In its decision, the FCC held that:

Because it is now possible to determine the actual interstate and intrastate revenues of nomadic interconnected VoIP providers, there is no basis for preempting the states from imposing USF obligations on the intrastate revenues of providers of nomadic interconnected VoIP service.

States may base their USF assessments only on the portion of VoIP revenues that fall outside those interstate revenues upon which each provider’s federal USF contributions are assessed, whether that portion is the 35.1% of revenues outside the 64.9% of revenues the FCC has deemed to be interstate under the safe harbor provision in the 2006 VoIP USF order, the revenues attributed to intrastate traffic by a provider's traffic study, or a portion determined by some other means of accurately classifying the jurisdiction of interconnected VoIP communications.

States must adopt rules to ensure that multiple states do not assess USF contributions on the same nomadic interconnected VoIP revenues. The FCC further noted that state commissions already have rules in place similar to those required to apportion USF assessments on the intrastate revenues of wireless providers.

In the ruling, the FCC provided two major policy justifications for its decision. First, the FCC noted that interconnected VoIP providers benefit from state universal service funds in the same manner as other carriers because their customers value the ability to place calls to and receive calls from the PSTN. Second, the FCC explained that extending state contribution requirements to nomadic interconnected VoIP providers would reduce the possibility that carriers without USF obligations will compete directly with carriers subject to such obligations, and thereby gain an unfair competitive advantage.

The Declaratory Ruling comes in response to a petition of the Nebraska and Kansas state utility commissions for a declaratory ruling establishing that states are not preempted from imposing USF contribution requirements on the intrastate revenues of nomadic interconnected VoIP providers. The petition was the direct result of a 2009 decision of the Eighth Circuit Court of Appeals, where that court invalidated Nebraska’s efforts to assess state USF contributions on intrastate nomadic VoIP revenues after the court determined that such assessments were preempted by earlier FCC rulings.